Sun Travels has paid US$31 million to Hilton after losing an arbitration over the termination of its agreement with the global hotel giant to manage Iru Fushi Resort.
On 27 February 2009, Sun Travels signed an agreement with Hilton to manage Iru Fushi. However, in April 2013, Sun Travels cancelled the agreement, citing that Hilton had repeatedly violated its terms.
Hilton then, in May 2013, filed a case with the International Court of Arbitration of the International Chamber of Commerce (ICC). Subsequent to this, Sun Travels was ordered to pay US$29.6 million (MVR 454.4 million) in damages.
As damages remained unpaid, Hilton, in 2020, filed a case at the Civil Court seeking the award payment. As a result, Sun Travels’ bank accounts were frozen as part of an enforcement action.
Sun Travels said in a statement on Monday that it has now paid Hilton US$31 million, including interest, in connection with the case, and that the company had spent an additional US$5.6 million on legal and other related expenses.
Sun Travels said in the statement that Hilton had offered to operate Iru Fushi under the Hilton brand while Sun had been operating the property themselves. Hilton’s proposals were rejected three times, and Hilton had changed projected revenue figures as many times within the course of one month, the statement said.
“The purpose of this was to deceive Sun into signing the agreement by fraudulently showing the company that they would make huge profits if the resort was run under Hilton’s management,” the statement said.
According to Sun Travels, the reason for its signing with Hilton was because the hotel brand had stated that they would amend the agreement if it failed to meet the projected figures, and because Hilton was a company reputed for managing luxury resorts. Sun Travel relied on Hilton’s projections, they said.
After the agreement was signed in July 2009, the resort began operating under the Hilton brand. Following this, according to Sun Travels, Hilton submitted a much lower revenue forecast, with room rates reduced to 50 percent, as were gross operating profits. Since Hilton failed to meet its estimates and budget, this convinced Sun Travels that the management agreement with Hilton was entered into through fraud and deception, the company said.
Under the management agreement, Hilton was given the operation of the property without any financial responsibility.
According to Sun Travels, Hilton ran the resort for three years at an extremely high cost, where the resort was furnished at a very high cost to, and the financial detriment of, Sun Travels. In the statement, the company alleges that Hilton ‘stole Sun’s money’, detailing that the resort, under Hilton, started to lose money. Whereas, under the agreement, Hilton was supposed to carry out renovations on the property, they never did so, causing Sun Travels to incur rising costs, the statement said.
During that period, Sun Travels noted that resort-related payments to state and financial institutions were facilitated via Sun-affiliated companies, adding that they had to reschedule loans because the property managed by Hilton was not receiving anywhere near what was expected. Hilton was still charging management fees, Sun Travels said.
As such, Sun Travels was forced to terminate the agreement after their management brought issues to Hilton’s attention to no avail, according to the company.
Hilton’s fraud and deception essentially bankrupted Sun Travels, leading to the decision to take back the management of the resort in order to save the bankrupt company, to protect the company’s interests and maintain the company’s image, the statement alleged.
According to Sun Travels, it is still working to recover from the negligence and will be seeking further action and legal remedies.
